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Under-Water Auto Loans on the Rise

Percentage in negative equity grows, and average amount owed reaches a record in Q4.

January 16, 2025
Under-Water Auto Loans on the Rise

Both the monthly and overall financial impacts of upside-down trade-ins for those consumers hit records in the fourth quarter.

Credit:

Pexels/Mikhail Nilov

2 min to read


A growing number of U.S. consumers are under water on their auto loans and owed a record amount in the fourth quarter.

A quarter of traded-in vehicles with outstanding loans had negative equity in the quarter, up about a percentage point quarter-over-quarter and by five points year-over-year, according to Edmunds.

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What’s more, the amounts owed on the upside-down loans are now higher than ever. The average hit a record $6,838, up 6% quarter-over-quarter and 13% year-over-year.

Among the upper reaches of upside-down loan amounts, borrowers owing more than $10,000 on trade-ins for new vehicles grew to a quarter of such consumers, Edmunds said, up three percentage points quarter-over-quarter. Meanwhile, 9% owed more than $15,000, up one percentage point.

The trend would seem to establish a dangerous pattern for a significant share of auto consumers, the California-based auto inventory and information provider said.

“… it wasn't too long ago when more than a third of trade-ins toward new-car purchases were upside down," said Edmunds Head of Insights Jessica Caldwell. "What's particularly alarming in the Q4 figures is that a growing share of trade-ins are hitting the double-digit mark in thousands of dollars owed, making the cycle far more challenging for consumers to escape."

Both the monthly and overall financial impacts of upside-down trade-ins for those consumers hit records as they assumed $159 more in monthly payment obligations and financed $12,388 more than the industry average for financed new vehicles.

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"The ramifications for trading in a vehicle well below sea level for a brand-new vehicle can be drastic and lead to a cycle of poor auto financing decisions," said Edmunds Director of Insights Ivan Drury.

LEARN MORE: Delinquent Auto Loan Growth Down

Originally posted on F&I and Showroom

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